The Northern District of California dismissed with prejudice a lawsuit alleging a 401(k) plan’s sponsor and fiduciaries included unreasonably expensive funds in the plan’s investment lineup.  The court previously dismissed the plaintiffs’ claims without prejudice, finding their complaint failed to plead facts from which the court could infer the defendants breached their fiduciary duties.  In response, the plaintiffs filed an amended complaint.  The court held that the plaintiffs’ amended complaint suffered from the same infirmities as their initial complaint and dismissed the case again.

In particular, the court rejected the plaintiffs’ reliance on an industry publication’s calculation of median fees charged by a few plan funds because the data amalgamated fees charged by funds with disparate characteristics.  Thus, the court held the median fees were not an apt comparator for the fees charged by the specific challenged funds.  Similarly, the court nixed the plaintiffs’ comparison of actively managed funds to passively managed funds because the two types of funds “have different aims, different risks, and different potential rewards that cater to different investors.”  Finally, the court dismissed the plaintiffs’ claim that the plan should have offered less expensive share classes of some plan funds.  The court found unavailing comparisons between the less expensive share classes and those included in the plan because while the fees charged by the plan funds paid for the plan’s recordkeeping and other administrative services, the less expensive share classes’ fees did not.  Accordingly, the court held that the plaintiffs failed to cure the multiple fatal defects in their initial complaint and dismissed the amended complaint with prejudice.  The plaintiffs have not yet noted an appeal of the dismissal.

The case is Davis v., Inc., No. 20-cv-01753 (N.D. Cal. April 15, 2021).